The economic fallout from COVID-19 has been swift and severe. Moratoriums, quarantines, and bans will continue to upend daily life and with this impose severe economic consequences on regional, national, and international commerce. While the federal government struggles to prop up the overall economy, many businesses are looking to what, if any, specific relief might be had. This search inevitably leads to insurance. Unfortunately, the question of whether commercial lines insurance might cover COVID-19 related losses results in a lawyerly answer: it depends. More specifically it depends on the (1) the type of insurance purchased, (2) the wording of individual policies, and (3) the particular circumstances surrounding each business’s loss.
Policies Potentially Providing Coverage
Business income loss insurance. Almost every commercial policyholder carries business income loss insurance, but these policies are almost always triggered by some variation of “direct physical loss or damage to” insured property. Fortunately for policyholders, courts have found things like bacteria and dangerous gasses can constitute direct physical loss – meaning that courts may find that a property that is contaminated with the COVID virus has suffered “physical damage.” That said, policyholders should still expect tough sledding. Insurers will likely push back on factual grounds (how long did direct physical loss exist if the coronavirus can only survive on a surface for 24 hours?) and through exclusions for delay, loss of market, loss of use, or indirect or remote loss or damage. There are also basic accounting questions. For example: would the business have been better off staying open and how much profit (if any) would it have made if was in fact open?
Business income loss policies generally also provide “civil authority coverage.” This coverage kicks in when access to a business has been “prohibited” by a government directive due to a “direct physical loss or damage” event occurring somewhere other than the insured property itself. Access to this coverage will require winning a threshold argument—whether access has truly been “prohibited” as the result of the various COVID-19 governmental decrees—and then dealing with same “direct physical loss or damage” issues described above.
Industry-specific coverage. Insurers write different coverages for different industries. Thus, it is fairly common for restaurants/retail operations to carry coverage for “communicable disease events”. While these coverages may still carry “physical loss or damage requirements” they often specifically allow mitigation and assessment costs to be recovered. Small changes like these in policy language can often open doors for policyholders. Moreover, the more a court believes an average purchaser of insurance would think they had purchased insurance for a disease event like COVID-19, the more likely the court is to find that the policy provides coverage.
In the same vein as “communicable disease event” coverage, some polices in fact contain “pandemic event” endorsements. Coverage under such endorsements can be triggered by “infected person” entering the insured premises or an announcement by a public health authority that a specific location has been closed due to a pandemic event. Policyholders will want to comb their policies for such endorsements and, if the facts permit, begin assembling their claim to be presented to their insurers.
Trade disruption insurance, dependent property business income insurance, pollution liability and cleanup coverage, and travel insurance are other examples of industry-specific coverages which may respond to COVID-19 related loss. All these policy forms should be reviewed (the sooner the better) and, if coverage is a possibility, a claim should be made with careful attention to the specific policy language employed.
Facts matter
Coverage for COVID-19 losses will likely depend not only on the wording of an individual policy but also how the policyholder’s actual loss materialized. Does the policyholder have evidence that an actually sick person entered his/her premises? Did a civil authority single out a business for closure? Would the policyholder have made a profit (or lost less) if the business had remained open? The answer to these questions can change the viability/strength of a coverage claim. In all cases, an in-depth evaluation of these issues and contemporaneous documentation may mean the difference between a successful claim and an expensive wild goose chase.
Know your deadlines
Most first-party policies (like business income) contain suit limitations clauses which essentially preclude a policyholder from bringing a breach of contract action against an insurer more than a year (or sometimes two years) after direct, physical loss occurred. Knowing these deadlines is essential. Likewise, policyholders should be aware that individual coverages may contain their own deadlines. For example, communicable disease coverages may require reporting the loss within 30 days of an order from a public health authority. The same is true in the third-party/liability insurance context. For example, a professional liability claim that is brought on the basis that a person was sickened due to a business staying open, will need to be reported within the policy’s reporting period or all possibility of coverage for the claim will be lost. And claims-made pollution cleanup policies may require that the need for contamination cleanup be reported to the insurer before any costs are incurred, in order for those costs to be reimbursed by the carrier.
We are here to help
These are difficult times for businesses near and far. While we cannot promise an insurance solution for every COVID-19 related loss we have a long track record of working with clients, brokers, and experts to successfully pursue and obtain payment from insurers. Looking into such recoveries while evaluating other legal issues raised by COVID-19—for example, force majeure clauses—is a prudent course of action for all businesses as we continue to weather the COVID-19 storm.
